Yet again, Greece is in last ditch negotiations with other European states in the euro zone, the group of countries that share the common currency, over a proposed deal in which it would promise reforms in return for economic help. It has made an offer that gives in to nearly all of the demands that other Europeans were making a couple of weeks ago – but some of these other states are saying that this is no longer enough. What’s happening?
Other euro-zone states are saying that they can’t trust Greece
German Chancellor Angela Merkel has complained that “[t]he situation is extremely difficult if you consider the economic situation in Greece and the worsening in the last few months, but what has been lost also in terms of trust and reliability.” This echoes what a lot of other Europeans are saying – that Greece simply cannot be trusted to deliver on its end of any deal. On one hand, northern Europeans see the Greek state as weak, corrupt and unable to deliver on promised reforms. On the other, they distrust this particular government, which they see as having negotiated in bad faith, sometimes making promises that it can’t deliver on, and sometimes making crazy and insulting threats.
But it’s not clear that Greece can trust other E.U. states either
Greece could equally argue that it’s other states in the European Union aren’t especially trustworthy. First, the euro zone, like the Greek state, is collectively weak. It is composed of different countries with different interests, any one of which could decide to block a deal (except under circumstances of emergency). It has a habit of making things up as it goes along (for example, blocking Greek participation during a crucial meeting on legally dubious grounds). It too has been inconsistent in its negotiations with Greece and indeed other European countries, as witnessed by its reluctance to accept a deal that it had effectively been trying to force down Greece’s throat a couple of weeks ago. And key members, such as German Finance Minister Wolfgang Schauble, seem willing to float threatening ideas that seem just as crazy in their own way as anything that Greek politicians have proposed.
Power and hard bargaining leads to distrust
I’ve written a lot about trust, including this short paper on the difficulty of creating trust in situations where one actor is much more powerful than the other. Actors who are weak don’t have any good reason to trust actors that are very powerful, since very powerful actors don’t have any reason to care about the interests of weak actors. If they make a deal with weak actors today that doesn’t suit them tomorrow, they will have no compunction in ripping up that deal tomorrow, since they don’t fear retaliation. Accordingly, weak actors have no interest in being trustworthy either, since they do not anticipate that powerful actors will reciprocate their behavior.
At the moment, both Greece and other euro-zone countries are creating the conditions for profound two way distrust. Other euro-zone nations do not trust Greece to deliver on any commitments that it makes. Greece does not trust other euro-zone members to give it relief if it does, in fact, deliver. There are possible ways out of this dilemma, but none of them are easy.
Read more about Greece and the euro at the Monkey Cage:
Mark Copelovitch, Greece votes no. Is this the end for the Eurozone?
Nicholas Sambanis, Why the Greeks rejected Europe’s bailout
Stathis Kalyvas: Why the Greek referendum is the referendum from hell
Amber Curtis, Joseph Jupille and David Leblang: Greece isn’t the first country to have a debt referendum. Does Iceland provide useful lessons?